Carbohydrate Taxes
Sri Lanka not only taxes rice, but also wheat and potatoes making carbohydrates extremely expensive, hurting the basic nutrition of the poor.
Import duties create markets for local producers and farmers by keeping cheaper alternative products out of the reach of the poorest sections of society, as more well-to-do people have the means to overcome such barriers.
Though Sri Lankans have been growing and eating rice for thousands of years, people in the country now pay the highest price for rice in South Asia.
Earlier in the year Sri Lanka imported rice from Pakistan and retailed them at around 52 to 54 rupees a kilo while a higher grade of imported white long grained rice, which retailers call 'basmati', is even now retailing around 69.50 rupees a kilo.
"I think a duty of about 15 rupees a kilo will be fairer. But the duty decision is made by the finance ministry. Nobody is importing now because the local harvest is coming in."
Sri Lanka has a powerful rice milling lobby which is close to political power centres and rice farmers have also become an important power base and are also given a nationalistic flavour as 'local producers'.
Sri Lanka's rice and carbohydrate prices are high despite the government busting about 26 billion rupees a year on fertilizer subsidies.
Food Crisis
Through Sri Lanka's consumer affairs authority, Gunewardene has imposed price controls of 60 rupees a kilo for red rice and 70 rupees for the higher grade 'Samba' rice during the so-called 'food crisis' in mid 2008.
Sri Lanka's rice prices have been permanently around 'food crisis' levels or higher.
International rice prices, which collapsed in mid-2008 as a credit bubble fired by the US Federal Reserve, has moved up by around 20 percent.
According to the Food and Agricultural organization a 5 percent broken kernel Vietnam export rice variety went up from 380 US dollars a tonne or 43.50 rupees a kilo in September to 520 dollars or 59 rupees in December.
Earlier in the year self service super markets in Sri Lanka ran out of red rice due to price controls and some varieties of rice were only available in smaller shops in a 'black market'.
Gunewardene says price controls will be 'strictly enforced' now that wholesale prices of the 'Samba' rice grade has fallen to 63 rupees a kilo and 'steamed nadu' to 52 rupees.
Gunewardene said the cost of production of a kilo of rice was about 15 rupees in high yielding fields and the government and private traders were buying paddy for about 28 to 30 rupees a kilo.
Under this formula a price control of 60 rupees a kilo gave the processers, wholesalers and retailers a sale price about twice the farm gate price, Gunewardene said.
Low Quality
Sri Lanka's farmers produce low quality which do not conform to standard globally traded rice and cannot be readily exported. Therefore prices fall if there is a good harvest.
Recently however some firms have started to export small quantities of rice, especially to countries with large expatriate Sri Lankan communities. But they also face dangers. In 2008 the state put curbs on exports.
Other than putting import duties to keep Sri lankan rice prices high, no attempt has been made to promote the cultivation of readily exportable grades of rice.
Prema-chandra Athukorala, an economics professor at Australia National University says when Sri Lanka became a member of the World Trade Organization it kept agricultural tariffs at a high rate of 50 percent and also kept quantitative restrictions in some products.
"Sri Lanka is the country with the highest potato market price in the world," Athukorale said on the sidelines of the Sri Lanka Economics Association annual sessions last year.
"Potato cultivation is concentrated in two or three electorates in the Welimada area. The basic reason is the protectionist lobby."
Now there is a revival of the failed 'import substation' policies that gave profits to producers but gave high priced low quality products to the ordinary people.
Profiteering Phoenix
"The old idea of achieving self sufficiency has come back to the policy debate," says Athukorale.
"I think policy makers listen more to these advisors who come up with their own ideological position rather than explaining the economic reality."
Unlike farmers, Sri Lanka's industrial protection lobby is not very strong and after the 1970s' failed 'import substitution' debacle, have stopped preying on helpless consumers for the most part.
"There are escalating tariffs on some consumer durables and motor cars and so on but generally tariffs are low in Sri Lanka," Athukorale said.
"That has been one of the reasons behind the economic dynamism after opening of the economy."
A largely state run fabric industry which was selling low quality, expensive kerosene smelling cloth finally went bust in the 1990s liberating the poor.
High Value
For centuries Sri Lanka has been an exporter of high value agricultural products such as spices, though it has imported rice to feed a growing population. The British also started the tea industry.
Athukorale says Sri Lanka is also missing out on the global high value processed food trade.
"But unfortunately our agricultural sector has not been able to diversify into this new dynamic export product areas," says Athukorale said.
"One of the major reasons is the agricultural protection. The farmers are concentrating their entire effort into producing one commodity - that is rice.
"We are not big exporters in other subsidiary food crops which get very high prices as well as processed food items like cut and packed vegetables and chillies and other product areas which are very lucrative export earning sources.
"To summarize my points on one hand consumers are suffering, on the other hand agricultural diversification process has been hampered by agricultural protection."
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